Thank you. (Operator Instructions). And our first question comes from the line of Steve Shaw, Analyst with Saccardi & Company. Please go ahead.

Steve Shaw – Saccardi & Company

Hi guys, how are you doing?

Cary Wood

Good morning Steve, how are you doing?

Steve Shaw – Saccardi & Company

Just a question on the complex systems segment. I know a while back you guys said you would give it some time maybe, two or three years or so I believe and step back and reevaluate it. Now, this is sort of improving and getting to where you want to be, have you guys thought about what you’re going to do with that segment?

Greg Slone

We are, Steve as you well know, six of the eight quarters into our evaluation process. Our expectations, several years ago was that it would contribute positively on cash flow and that it would provide margins similar to some of the other business segments. And that it had to achieve a double digit sustainable performance and it is clearly gotten in that range. And it has shown I’ll call it shades of greatness with sustainability but we still got ways to go.

I think there are some performance enhancements there. There are, some revenue opportunities still yet there. And frankly, in the M&A space, there are lots of opportunities that could further augment the performance of this business if we were to choose to go that route and we’re certainly interested in those types of targets.

At this point, I’m not going to use today’s call to declare victory over our complex segment just yet. I prefer that the performance still gets improved and shows some sustainability. But I think that’s probably the best answer I can give for today Steve.

Steve Shaw – Saccardi & Company

Okay. And then, on the impact of the Sonobuoy testing to improve the quality for the Navy, is that still ongoing – do you guys have any idea of how exactly, how that impacted you guys for the quarter and how’s that acting going forward?

Cary Wood

Yeah, let me give you a little bit of history on that. When we ship our Sonobuoys, we ship in full lots, which is a significant sized revenue chunk. And they either pass or they fail in totality. We had several lots of failures last year that were frankly frustrating. And the good news was that the failures were on older Sonobuoy applications that we hadn’t fully implemented some of our quality systems against.

When we came into this company several years ago, we concentrated on the 80/20 which was the more recent applications, the higher demanded Sonobuoy applications and we saw that mix shift a little bit last year and consequently we saw some failures on Sonobuoy applications that we weren’t fully attending. And frankly, we put in, in the near term, certain inline testing, destructive testing, outside re-sourcing. And it didn’t come without an impact financially to the quarter. But I think on a forward looking basis, while we’ll continue to put in rigorous quality impacts to the cogs, I don’t know that it will have the same effect on a go forward.

I’m not prepared as I sit here to give you a number as to what it was and what it will likely be. But we will improve on our yield, we’ll continue to interview certain inline processes including destructing testing and inspection. And all of which adds costs but yields out the backend, a more reliable and sustainable revenue stream because we shouldn’t see lot of failures to the degree that we’ve seen in the past.

So, that’s generally what we’ve accomplished there. And I’m hard pressed to give you a number. But I think, more importantly, if I looked at the DSS segment compared to historical performance, there is, really two or three things that are influencing. A, you just sit out one being the additional cost associated with or near term that not added cost on quality – destructive testing being the single biggest example of that.

Another big chunk of that includes the ramping up of Q125, high altitude related engineering resources. And that had certain impact on cogs. And then, lastly, we saw a downturn in certain planned revenue in our digital compass, our preexisting digital compass.

Its end use applications have been essentially called back from combat and we still believe that over time, there will be a demand to retro fit. But for now, the regular stream has been somewhat delayed. And those were very high margin products. And that has had an implication on our near term return. So, with that being the case, you’d sum those three, you essentially accounted for the difference between historical margin performance and this current quarter.

I would also say as we look forward, we’re very bullish on our third and fourth quarter’s performance. And we expect that it will be right back to historical performance of our DSS segment.

Steve Shaw – Saccardi & Company

Okay. And then, lastly, do you have a time-table on that – on the digital compass and when there might being some traction?

Cary Wood

We’re hard pressed to say that all the revenue that was lost in our first half of the year will be accounted for the second half. I’m still optimistic that the older version compass will continue to sell at our planned rates in the second and third quarter. And as I mentioned, we continue to be very optimistic about what those returns will look like.

And then, we expected and frankly are seeing and it’s actually a little stronger demand for the new revenue stream associated with the newer version of our compass. And those have very different end applications and end markets but we are starting – and the revenue is modest and it was always planned to be modest. And it was justified in our careful analysis, having been modest. But we do expect to continue to see that strengthen over the course of this year.

So, I’m hard pressed to tell you exactly what program it was, when it will come back, how big it will be. But I don’t believe that the revenue lost in its totality we would recover between now and yearend, I just think it will end up getting shifted.

You answered a lot of my DSO’s questions actually. But I was hoping maybe I could penny down a little bit more on the impact of, you know, delayed digital compass sales here in the quarter, either on you know, revenue or margins, what specially that impact was here?

Cary Wood

Sure. Again, I’m hard pressed to give line item specifics on the compass. Our revenue impact historically has been on an annualized basis, you know, fairly modest. It went from roughly 1.5 million to roughly 3 million last year. We had accounted and planned for not dramatically increased revenue this year, so very similar performance what prior years have been on that product line. And that we expected to layer in to some degree modest revenue up-tick on the new releases of our GD6 and the PHOD version of our hydrophone.

With all of that said, I think it’s reasonable to expect the year-over-year revenue increase, if any increase at all, would be modest. With that said, we have one specific longstanding revenue stream and customer on that product that pulled back as troops was pulled back from abroad.

Again, we don’t expect if that’s going to go away. We just expect that it’s going to be temporarily displayed. And we don’t believe that within the fiscal year that it could be recovered. And in the implications of that, albeit, a smaller amount of revenue, it’s a very high margin contributor.

Net-net of all of that, I do want to continue to reinforce and suggest that the second half of our year, our third and fourth quarter, we continue to be very bullish on DSS, and we expect that the performance will be very similar to what it has been historically. And that will include to some degree, a level of sales on both, the old version of the compass and the forward looking version, the GD6, and even the PHOD hydrophone applications going forward. Now, all of which are much stronger contributors of gross margin than any other product we have in our portfolio.

Jimmy Baker – B Riley & Company

All right, that’s very helpful. Thanks. So, as it pertains to your internal R&D efforts, I realized these aren’t very large numbers. But I would – if it’s expected, your investments there to be a little more significant in the quarter and instead we’ve now had a couple of quarters of sequential decline. I mean, are you seeing opportunities to put more R&D capital to work or is this Q2 spend rate, kind of the right run rate to think about moving forward?

Cary Wood

You know, Jimmy I can’t, I wouldn’t suggest that what you saw on the quarter is an annualized run rate. Certain investments are timed to certain efforts. And we manage the calendar accordingly. I would say that our annualized R&D will be very consistent with what you saw last year, which if I remember correctly, it was roughly $1.6 million, $1.4 million annualized spend. We were less – we’re on the low side of that, going into mid-year last year. And then, we accelerated into the backend and then we’ll probably do something similar this year.

So, I don’t expect that the, invest and our IR&D will be any less this year. And I do expect that the second half, as it was last year will be a bit stronger. But to expand on your question that further, I think it’s fair to say that our year-to-date calendar and expectation of expense was exactly on track. So, it is as we expected it to be. We’re not redeploying cash. We’re not reducing on the IR&D spend none of that is the case. It just simply has – as we plan the calendar and the investments and resources and a lot of other things going on. So, that’s really kind of the broad answer to your question.

Jimmy Baker – B Riley & Company

Okay. It sounds like more seasonality than anything in the quarter therefore for R&D?

Cary Wood

Yeah, we’re reluctant to use that word, but Jimmy I think that’s probably a good way to look at it. I think if you look at last year compared to the second half of this year, there seems to be some level of higher spring’s amount of investment than there is in the winter, I guess, that’s true.

Jimmy Baker – B Riley & Company

Okay, thanks. Last question, and forgive me Cary but I have to ask about the M&A funnel. I’m glad you’re not coming down with BO fever. But I would like to get any more color on as maybe what’s delaying your efforts there, if you’ve seen higher multiples that you like or just not marking the right strategic bid out there?

Cary Wood

You know I appreciate the question. And I would suggest that there is probably nobody less impatient around M&As and me. And I think it’s reflected in the vibe of this organization and that is that we spend a great deal of time sorting through a good number of target opportunities. And we try and be very careful about how we spend our extra time and resources, diving deep into what we believe to be suitable targets.

Those targets don’t always work out, anybody who’s been in the M&A space and down some of that work knows that you can get to the alter and ultimately get uncomfortable. You can have the financing lined up, due diligence essentially behind you. And for whatever reason there are things that don’t come around is clearly they should, but in the 11th hour. And we’ve had some of those cases. So I wouldn’t say that we’re not making progress, we just haven’t closed on something to announce.

And we’ve got obviously certain expenses associated with that not anything that I can call out or certainly will be comfortable identifying our current SG&A rate, but there are some dollars have been spent and invested that with otherwise not be on M&A targets and as you know and certainties there is no surprise I guess at this point that we’ve not been able to announce anything. And – but we do expect to. We haven’t changed our approach.

We’re not shifting from larger opportunities to smaller. We’re looking at both and have been simultaneously. I still continue to believe that we’ll find the right opportunities we’ll properly deploy the investment. I think the real takeaway and I certainly appreciated the support of our Board and that is that we are very careful, we’re methodical. I think we’re very objective. I think we’re intellectually honest when it comes to actually making a choice about a target.

And we’re – we just simply don’t pursue it. Where we get uncomfortable with certain aspects of due diligence we’ll reverse course and we’ll probably divest that otherwise puts this company in. So I think we’re very, very prudent, very, very careful. I wouldn’t say that we’ve shifted on our soaring. We have seen and I think this has been somewhat independently verified given my own experience with a variety of investment bankers that multiples have started to slightly increase. And I don’t know that that changes a lot of what we’re doing. We’re still continuing to look for strategic and synergistic opportunities that we think are reasonable. I don’t think we’re on the low side of our offers and I don’t think we’re trying to purchase at a discount and discount only. I just think we’re being very careful and methodical in our acquisition search.

Jimmy Baker – B Riley & Company

All right. Thanks very much. I appreciate the time and good luck with the continued progress.

Cary Wood

Thanks. I appreciate it, Jimmy.

Operator

And our next question comes from the line of Ross Taylor, Portfolio Manager with Somerset Capital. Please go head.

Ross Taylor – Somerset Capital

Could you give us an idea of what type of free cash flow you would expect to generate this year assuming no M&A and what type of uses you would put that money to once again assuming no M&A?

Cary Wood

Without the, you know, kind of looking forward to June, you know, pretty much as of the first six months of the year, once again generated $6 million in cash, $7.7 million of that coming from operating activities. From a working capital standpoint, as far as our expectations for the rest of year, clearly the advanced billing that we get from the government has a significant impact on that. But once again, there’s timing difference between when we actually are able to build based on the milestones and when we produce the Sonobuoys and ship them.

So typically we usually see a high point on the advance payments usually about this time and then typically it’ll start working its way down a bit and then pick back up as we get into mid-summer into the fall. So that’s kind of a cycle that we felt year-over-year. From an inventory standpoint, we do think, we can make a little bit of progress as we get into the second half of the year and bring inventories down a little bit and generate some cash off of that. So essentially, you know, once again $6 million of cash right now even with $31 million at the end of the second quarter.

Ross Taylor – Somerset Capital

Okay. And how you see using that, as obviously, you’ve been looking for M&A, but you have been price sensitive. There’s a point of time in which one would think that the cash could be put to better use than continuing to wait for a potential M&A deal?

Cary Wood

Yeah. I mean, look, we – there is a handful of ways that we can deploy our cash, right. We can discuss dividends, we can discuss a buyback, we can deploy to M&A, we’re certainly pleased with what we’re seeing on the organic ramp-up and certainly that in and of itself is a good use of cash in the form of working capital. We’re starting to evaluate much more rigorously the investments in some of our business development efforts and expanding our selling resources and that’s a use of cash in on itself.

So, I mean, there is a good number of ways to deploy it. I will say today, no differently than we’ve set up until this point in the prior quarters. Our priority in the near term is on the M&A front. And we’re extremely active in the space and looking for the right opportunities. And I think that would be primary use of our cash and frankly we were comfortable taking on a good amount of debt, if the right opportunity came along above and beyond the cash that we have on hands.

So I would say that, we continue to be acquisitive, we continue to expect that, that would be the primary use of cash and that right behind that would probably be and has been an active discussion around stock buyback potentially, but there’s nothing to discuss today or to announce beyond what we’ve already announced on the way of stock buyback. So it doesn’t give you the, the specific answer probably one it gives you a general sense of where we might deploy it, but it does prioritize M&A.

Ross Taylor – Somerset Capital

Okay, great. I appreciate. Keep up the good work.

Cary Wood

Thank you. I appreciated that.

Operator

Our next question comes from the line of Andrew Shapiro, President with Lawndale Capital Management. Please go ahead.

Andrew Shapiro – Lawndale Capital Management

Hi. I have several questions. I’ll ask a few and get out of the queue and come back to me. According to your 10-Q that you filed yesterday, you had $1.5 million of share buyback authorization left at year-end and your press release says you used $1.2 million of that amount in January, which leaves only $300,000 in your buyback authorization left. Will you recommend and the company’s Board to prove an incremental authorization to retire additional attractively valued shares?

Cary Wood

We’re real pleased with the progress we’ve made. As you pointed out, the shares are attractively priced and we’ve certainly deployed the cash properly in buying back a good number of shares. We have discussed it we’ll continue to actively discuss it with our Board. And there are a lot of sides to that opinion. I think for now we continue to believe that M&A is the ideal place to deploy more of that cash than not. But that does not suggest that we won’t revisit the board and reauthorize something over the course of the near term.

Andrew Shapiro – Lawndale Capital Management

Yes. I mean, just $300,000 is only 35,000 more shares that you’re currently authorized, and if you went did another $3 million, it still only a small chunk of the cash flow you’re generating.

Cary Wood

Right, correct, recognize it.

Andrew Shapiro – Lawndale Capital Management

Regarding DSS; in November, you guys announced – actually you didn’t announce, yet. The Department of Defense announced a sizable option exercise for your ERAPSCO joint-venture for a bunch of sonobuoys, primarily for the US Navy and a small amount for Taiwan.

And then following that just last week, a much more sizable Department of Defense contract announcement was made for ERAPSCO for another $36 million of a different type of sonobuoys primarily for the US Navy and a small amount for Taiwan. So with respect to those two sizable option exercises, what quarters were or will these amounts be added to your DSS backlog, and for what quarters are either or only one of these contracts in your slide number 10 with the US Navy sonobuoy contracts?

Cary Wood

First I would say that the DoD announcement is not something that the company currently has been given the privilege of announcing. We do have a very specific and deliberate protocol with the DoD; it is called out in the contract and we will ideally announce those things sooner than later. Our competitors sometimes get a little cavalier as to how they take to the market space and I think that point will be brought up in our joint venture discussions and ultimately, I think you’ll see more of a joint announcement than the fact that Sparton sits on the sidelines and follows to the Q – our contract terms.

That said, you did see two announcements vis-à-vis DoD. And I can’t get into too much of the details obviously given our contract terms. But I would say that any type of figures you saw in those two separate announcements, the first of which November 7, the second of which was January 27, are not currently in our December 31 backlog. And there are some administrative...

Andrew Shapiro – Lawndale Capital Management

Cary, even the November one?

Cary Wood

The November one is not in our current backlog.

Andrew Shapiro – Lawndale Capital Management

Wow, okay.

Cary Wood

And there are some administrative reasons as to why they are not. But until we go through the full acceptance of purchase orders and contract and sub-contract terms and ultimately, you know, we’ve been through some administrative steps we don’t include in our backlog. Just because they make an announcement it doesn’t mean that we don’t still have some work to do. And so that said, you’ve got two separate announcements, November 7 and January 27 that I recognize are out there in public domain, neither one of which I’m going to comment much further on, except to say that neither one of those two contracts are currently in the 12/31 backlog.

Andrew Shapiro – Lawndale Capital Management

That’s almost $54 million, if I’m reading the DoD releases in front of me right now correctly?

Cary Wood

I believe the November 7 as I read it correctly was roughly $15.6 million and the January 27 was in the neighborhood of about $38.5 million or thereabouts.

Andrew Shapiro – Lawndale Capital Management

Yes, okay. So now, when you announced the deal, meaning that when the DoD gives you approval, is when you put it in the backlog or is it some type of intervening time before your press release and their approval for a press release, but after this DoD announcement, somewhere where you’re dotting the I’s and crossing the T’s, when is it that it goes in your backlog?

Cary Wood

They generally are about the same timeframe. I don’t want to connect them is being one is dependent upon the other. It doesn’t mean that we don’t come to agreement and accept the purchase order and then wait to announce it. We’ll announce it when we get the opportunity to do so. That might happen before or it might happen. They generally are in the same time proximity.

Andrew Shapiro – Lawndale Capital Management

Okay. So now, let’s talk about the foreign ones. So the recent press release you issued just this last week announced $7.6 million of sonobuoys for the Australians.

Cary Wood

Correct.

Andrew Shapiro – Lawndale Capital Management

What quarters were or will these amounts be added to your DSS backlog? And then also you included in that press release a prior $9.7 million of foreign sonobuoys for Canada, Norway and Brazil that you referenced had just completed delivery. So I was wondering how much of the $9.7 million was in the September 30, Q1 backlog?

Cary Wood

You know, as it was expected, we’ve seen a good strong year on foreign sonobuoy sales. The $7.6 million to the Aussies was announced and included in the backlog of 12/31. The $9.7 million to a variety of friendly NATOs, Canada, Norway, Brazil; they were not only in the Q1 backlog, but then ultimately shipped in the Q2. So I think it’s better to say that, that number was fully out of the 12/31 backlog.

Andrew Shapiro – Lawndale Capital Management

Okay, good. Now, that’s helpful and gives clarity on that. Now, with respect to a foreign and I’ll back out in the queue here. So the January 27 and even the November 7, ERAPSCO contracts called for a small quantity of sonobuoys to go to our allied nation of Taiwan obviously for maritime protection versus the growing Chinese Navy, all right? The press reports show that Taiwan has purchased, but not yet accepted delivery of 12 P-3C Orion maritime patrol aircraft, which will start arriving in Taiwan later this year and into 2013. This is what the US Navy flies now and buys your sonobuoys for?

Cary Wood

Yeah.

Andrew Shapiro – Lawndale Capital Management

Given the 30-minute to eight-hour battery life of these sonobuoys, okay? And from what I can count in terms of sonobuoy drop tubes in the belly of these P-3s, okay; these P-3s are going to drop this small quantity of sonobuoys in less than a single month. Am I correct about the pace at which sonobuoys get thrown out of a plane on a typical flight mission and if that’s the case, what might be the annual utilization of Sonobuoys per P3?

Cary Wood

The last part of your question is the much, tougher one. There is, a lot of variables. You’re not incorrect in the way that you’re interpolating facts. I think that there are a lot of other moving parts. I think first, let’s talk a little bit about what the P-3, P-8 transition means and how ultimately Taiwan might be somewhat of a leading indicator of things to come.

There are roughly a 130 active P-3s in operational use today. There are another good number of those that are in existence, but are essentially not active. As we ship from the P-3 low-altitude prop aircraft deployment of sonobuoys and shift to a P-8 jet platform higher altitude, you’re going to see some dynamics change on the current landscape for sonobuoy sales and even geographic implications.

I think that Taiwan, its purchase of several indicates that they’ve got interest in enhancing their own anti-submarine warfare capabilities. I think the number of sonobuoys that they’re purchasing, you know, with an active typical mission and again, a lot of variables go into this. But it could be anywhere from 40 to 80 different sonobuoys in a single mission; would suggest that probably more likely than that, the more near-term purchase is in the validation of these various aircrafts.

So I’m not going to sit here and speculate as to what the annual purchase will be by Taiwan or any others at this point. I do think that there are some other good, number of facts out there that can give a good sense for where things might ultimately migrate towards and, that is that the US is replacing low-altitude prop aircrafts with high-attitude jet.

Those 100 plus-aircrafts are likely to end up somewhere. They’re likely to end up in the hands of foreign friendly NATO countries. And that we’re going to continue to provide them with sonobuoys and that opportunity, at least in some part is reflected in some of the future forecasting of sonobuoy revenue in the years to come.

Andrew Shapiro – Lawndale Capital Management

Okay. And do you have any thoughts on when – you’re boosting your foreign sonobuoy sales, because there’s just going to be a bigger fleet of foreign sonobuoy-dropping planes, and we go to the P-8s. We’re getting about P-8s because the US Navy has their deal with you about funding a lot of your working capital needs. What happens when you do these foreign contracts? Is that a Sparton funding of working capital and that’s part of the reason you’ve got higher margin or how these things differ in your contracts with foreign friendlys?

Cary Wood

We don’t have the advanced billing feature, but what we do have in some cases are pre-payments, not in the same way we see the advanced funding by the Navy. But we do sometimes have a pre-payment. But in all cases, I would say that the cash conversion is on an accelerated basis. I don’t want to comment too much more on that; there is a variety of ways that we handle each of these accounts.

We are very cognizant of who it is that we’re providing even the smallest amount of credit to, and we’re very cognizant of the fact that it’s not the US Navy and that we do work through US Navy to ultimately execute on these contracts with their approval. But at this point, if there is a cash conversion, it’s just – it’s nowhere near like what the Navy’s positive cash conversion, it’s been up to this point. But I wouldn’t suggest that it is negative and in some cases, even prepaid.

Andrew Shapiro – Lawndale Capital Management

Great. I have several other questions I’ll get back into the queue. Let others ask, but please come back to us.

Cary Wood

Very good.

Operator

(Operator Instructions) Our next question comes from the line of Kevin Casey, analyst with Casey Capital. Please go ahead.

Kevin Casey – Casey Capital

Hi, Cary. Couple of questions about the other segments which you are trying to grow like business development; how many people you’ve hired there and how long will it take for them to ramp up?

Cary Wood

We’ve mentioned in some of our other Investor Relations formats that we’ve brought on a good number of new business development resources. Most of that efforts queued up in the fall of last year. So we’re well into our first year of our business development resources. That said, we continue to enhance; we continue to improve upon that. We’ve made a recent hiring on the East Coast or a business development rep that is tightly tied to the medical device industry. So we continue – that continues to evolve. I would say and I’ve quoted in the past the selling cycle on each of these segments is somewhat different.

The Medical segment is at 12 months to 18 months selling cycle type of industry. The Complex System where there is some degree of complex opportunities available generally speaking. Well, less than what the Medical segment is, it’s still a bit of a time horizon of 9 months up to 18 months and every application is somewhat different. I think if you take all of our segments and you take a record of a year ago, I would say that we’re in the first several quarters of the ramp up of results from the previous years at our business development efforts.

And obviously, when you net out the effect of the Siemens downturn in our first quarter; when you net out the calendar effect of a disengagement from one customer to about $2.5 million last year; I’m very, very pleased with what I’m seeing in upward momentum. About 10% of our current year’s planned revenue are from brand-new customers. And so, I think a lot of the right things are starting to show. I think we invested prudently in the right business development resources. I think the selling cycles that we’ve predicted are assumingly proving to be true. And my hope is that, that momentum is going to continue and that we’re continuing to consider the enhancement of our business development resources above and beyond the choice we made a year ago.

Kevin Casey – Casey Capital

And then also can you talk about when you win a new customer, are they trialing you, are you on one program and then looking to ramp more or...?

Cary Wood

Right.

Kevin Casey – Casey Capital

Is it that they just sign up and that’s it?

Cary Wood

Yeah. It’s, you know, it’s a mixed bag Kevin and the reality is, we are in the contract manufacturing business. I think we have as a contract manufacturer being probably more strategic and selective in both, the end markets, the segments, the types of customers and devices that we get involved with. Our view is that by getting into complex devices; by getting to highly regulated devices or having chosen the markets and having stayed away from certain other markets, I think is intended to sustain some of that revenue on a much longer and more predictive basis. But let’s not forget that the nature of our business is contract manufacturing.

We offer a certain accelerated prototyping capability that sometimes turns over customers very, very quickly for, but a small, discrete, spot-in-time engagement; that’s why they don’t include that in our backlog. It would be misleading as to the number of customers we might serve there. So it’s a mixed bag.

I think we’re seeing and I’m very pleased with the fact that we select, who we select to engage on prototype with, we continue to sell all of our features including the geographic reach, our engineering depth, our internal testing capabilities, all of that I think is the set of features that differentiate us. And I think ultimately, we’ve seen good momentum on new customer engagements that might hold this will last the whole lot longer than that.

The medical extended life, it can be five, eight, upwards of 12, 14 years on a device and that’s why we’ve chosen to engage there as opposed to highly turnover – at a high turnover associated with consumer-based products; so even computers and that type of equipment in the contract space. So I think we’ve chosen the right end markets. I think we’re selective about who we engage with. I think we’re careful in that, we take on contracts that have more life that not. And I think we’ve added all the right features and strategically continue to do so that makes our revenue far more accretive and sustainable.

I know that’s not the exact answer you’re looking for, but it does give you at least enough broad strokes to work with, I believe.

Kevin Casey – Casey Capital

Great. Thanks a lot.

Cary Wood

Sure.

Operator

And next question comes from the line of Jack Gulati, CEO with Safety Care. Please go ahead.

Jack Gulati – Safety Care

Thank you for taking my call. I have a few questions and they are perhaps disjointed, so please bear with me for a minute or two.

Cary Wood

Sure.

Jack Gulati – Safety Care

If my assumption for whatever reason is not correct; please help me understand it better.

Cary Wood

Okay.

Jack Gulati – Safety Care

Cary, what portion of your forecast or maybe I should say the remaining six months of this year that – the volume of business that you expect to do has a backlog tied to it; backlog meaning signed contracts?

Cary Wood

Yeah, I would say and have said all along, that our backlog, which that sits somewhere in a range of between, I don’t know, $120 million and $140 million, generally speaking over the preceding four to five quarters. And as you heard, we mentioned earlier in one of the questions that some of the more recently announced backlog or some of the more recently announced DoD contracts are included, some of those can extend well beyond 12 months.

There is a layering effect of various products under demand cycle. I would say, generally speaking, and I continue to sustain this opinion that the backlog reflects in some cases 6 months, 9 months, 12 months. It’s hard to give you one definitive answer given the nature of each contract. But I think, probably, it’s safe to say between six and nine months is what’s reflected in our current backlog.

Jack Gulati – Safety Care

Would it be a fair statement to say that for the remaining forecast revenue that you expect to generate in the next six months, i.e. for finish up this year up this year, is already signed contracts?

Cary Wood

Well, I think that’s fair to say, correct. Generally speaking, I mean, there are some cases where contracts are much shorter in duration. But when you take the balance of what we expect to do this year and you take what’s going on with nothing other than just our DoD contracts and some of our anticipated contracts, I think that’s a very reasonable assumption.

Jack Gulati – Safety Care

Okay. Thank you. Cary, you alluded to earlier a couple of questions on M&A. Obviously that’s a hot issue with the shareholders. So obviously, you’ll get bombarded with it all the time. Clearly you are spending certain amount of resources on acquiring comparable companies that would be of course with the right price and product mix and all that good stuff. Are you spending a reasonable amount of time at the same time of being acquired?

Cary Wood

You know, we’re not in that mode these days. I think probably, as any CEO should, you continue to be engaged with certain strategic partners that might ultimately be interested in acquiring you. I’ve been clear even though on many occasions I’ve been misquoted that we’re not in that mode right now, that we’re in growth mode, that we continue to prudently invest our cash towards either organic IR&D or M&A and we’ll continue to do that.

But I will say Jack I assure you that in my role, I spend a good amount of my time with the investor and the investment community with strategic partners on the partnering side as well as M&A target. So, generally speaking, I know exactly where I should be spending my time and I think, I’m doing it on behalf of the shareholders Jack.

Jack Gulati – Safety Care

Okay, great. The only reason I say that Cary, is, you know, you’ve been on the helm for about three years now.

Cary Wood

Right.

Jack Gulati – Safety Care

And you have done an excellent, excellent job, not only cleaning up the company, some of whatever, would you, before you came in. Obviously, the company was in a significant amount of trouble and turmoils and all that kind of stuff. And you did an excellent job in the rightsizing the capacity to the business and acquiring additional business, getting rid of the bad, bad apples, and of course making some, good, good acquisitions. You know, so basically, the reason I am saying that it is, you have positioned this company where it could be a very good target for some bigger companies – much bigger companies in your space and that’s the reason I asked that question.

Cary Wood

No, I think your assumptions are probably more spot-on, than not, Jack. I think that we are a high performing company that is underpriced in the market. I think, we’ve got a highly delivered balance sheet as it’s been pointed out and we’re sitting on a good amount of cash. I think, your observations are spot on. But our view for now is that we can continue to move forward growing and enhance the company’s value as a standalone and when the right strategic opportunity and partnering might come along, we’ll consider that. I think you’re absolutely right; your observations are spot on Jack.

Jack Gulati – Safety Care

Thank you. Moving back to the foreign sales; I’m assuming, though, these foreign sales are – while your contract is with the foreign governments; they’re part of that FMS sales, foreign military sales, which is subsidized by the US government. Am I not correct on that?

Cary Wood

You know, I think in some cases there are generally subsidies. And we don’t necessarily get involved in differentiating who they might be. I will tell you this. In all cases, we work through the DoD and that they approve all of the purchases and the purchasing interface is made through the DoD back to ERAPSCO and ultimately Sparton. So I think we have a high degree of assurances.

If the question is more along the line of – are these being subsidized so you can expect them to continue; are these being subsidized so that there is a degree of assurances on payment. I think you’ve got to perform some of your own opinions on all of that, but I think we’re comfortable that currently we’re dealing with the right-end customers and that the assurances and the use of the DoD makes us more comfortable with that.

Jack Gulati – Safety Care

Obviously, I used to be in the similar business normally at least foreign governments would pay you almost 100% in advance, but in return they require a level of credit. So obviously the cash flow should be good as long as you’re going to perform on those contracts and looks like you are, so there should be no concerns about the currency risks that your contracts are in USD; not in local currency or anything, so there is a no currency risk or credit risk. Am I correct?

Cary Wood

That’s right. I’m hard-pressed to sitting here and guarantee anybody on credit risks. I do think that some of the statements that you made are correct. I’ll go back to something I said earlier. In some cases the purchases are cash in advance. In many cases they’re on a very, very quick cash conversion cycles; so the receivable is a tight timeframe. And I believe certainly having made the purchases and the licensing through the DoD, gives some level of assurances that payment is secured. I don’t want to sit here and guarantee anybody on any credit risks. But I do believe that it’s probably – there is a lot of reasons to feel more comfortable than not.

Jack Gulati – Safety Care

My final question then. I’ve been clearing this company up in three years and done some acquisitions; assuming there are no more acquisitions that you feel comfortable with, what is your expectation of an organic growth and revenue as well as bottom line?

Cary Wood

That’s a tough one to answer Jack, without giving you direct guidance, right? I like our momentum, I like it a lot, I like what I’ve seen out of Complex Systems, I like what I’m seeing currently in Medical. Not only do I like what I see out of the more recently acquired assets in Medical. I’m, liking what I’m seeing in the change of leadership and the direction out of our legacy company in Strongsville. We don’t segment that out any more, but I will tell you that net of the reduction on either a customer disengagement and/or Siemens of last year, our organic growth and involvement with new customers is, not in consequential on a percentage basis.

So there is good momentum across the business as a whole. We have modeled out and I’ve expressed this and opened up the environments in investor forums that we’ve modeled out 3% to 5% growth projection on top line. And obviously, when you compare Q2, 2012 to Q2, 2011 we’ve surpassed that and my hope is that, we continue to surpass. I’m not sitting here today in comfortable giving revised guidance on that growth trajectory. But we’re certainly pleased with our year-over-year comparison Q2 to Q2; both at revenue, EBITDA and cash. So I think generally speaking, things are exceeding far beyond our expectations and we’ll continue to prudently and conservatively plan our go forward.

Jack Gulati – Safety Care

Not to put you anymore corner and I respect you. I mean, I see differently. During this period of last two years or three years, you were hit pretty heavy with downsizing from Honeywell and of course Siemens but it’s not that or calculation purposes, would it be fair statement to say, that you could grow your company at that rate, and this kind of goes through with realignment?

Cary Wood

Jack I’m not sure, I understood the question. Can you take another run at that for me, I understood the question around or the statement around Siemens and Honeywell and the like where we’ve ultimately disengaged from revenue. But I’m not sure I understood the other half of that, I apologize.

Jack Gulati – Safety Care

That’s all right. No problem at all. Okay. Taking them aside, you have grown the company at a, certain, good the top line rate?

Cary Wood

Correct.

Jack Gulati – Safety Care

Okay. Top line and that’s in takeout obviously the – revenues we got from acquisitions.

Cary Wood

Right.

Jack Gulati – Safety Care

And my question is, if I would take out acquisition revenues as well as the loss of revenues from those two accounts you just mentioned, would it be fair to say that you grew the company or the top line at a certain rate whatever that rate is?

Cary Wood

Well, correct. Yeah, that’s absolutely – that’s correct. There is a lot of moving pieces there, timing of acquisitions, what spot and time you’re comparing, more than one acquisitions, the in’s and out’s to these various programs; yeah, but you were correct.

Jack Gulati – Safety Care

So, if I take that, I would come up with a certain way to grow the top line and of course the bottom line too, so it would be fair to say that you feel comfortable if you can at least maintain that growth rate or adjusted the rate if you will.

Cary Wood

That is the expectation, correct.

Jack Gulati – Safety Care

All right. I appreciate it, you’ve have been very candid and keep up the good work. It’s a pleasure to be associated with you and your team.

Cary Wood

I appreciate that, Jack. Thank you very much.

Operator

And our next question is a follow-up question from the line of Ross Taylor, Portfolio Manager with Somerset Capital. Please go ahead.

Ross Taylor – Somerset Capital

Yeah, Jack did ask one other question I was going to ask is obviously, historically when the Defense Department budget declined, the big players tend to go shopping. But on to another subject, you with this development loss of Honeywell and other contracts you’ve obviously been able to, you know, replace that with higher margin business. Is there still in the company pockets of low or negative margin business that you see the ability to either move up substantially in margin or to move out of?

Cary Wood

There are opportunities, we margin and manage regularly. I would say that we’ve got a good discipline in the company where we evaluate each of our customers, products, various asset utilizations and determine what types of changes and actions we want to take. Obviously, not a good form to sit in and talk about in specifics. But generally speaking, there are opportunities for that. I wouldn’t suggest that there is incremental is may be what Honeywell would have been several years ago. I mean, that was generally speaking a quarter of the company’s overall revenue that needed to change and its pricing terms. But I do think that there is still are some pre-existing and legacy contracts that we have learned to be very patient with given the circumstances and overtime, I think those things can equally be addressed.

Ross Taylor – Somerset Capital

And so therefore, I would be safe to assume that there is still reasonable upside in operating margins over the whole corporation?

Cary Wood

I think generally speaking you are correct.

Ross Taylor – Somerset Capital

Okay, great.

Cary Wood

I think it’s much smaller and its implications and what it once was. But certainly they’re still in existence.

Ross Taylor – Somerset Capital

All right So, somewhere less than what you already been able to pick it up but still something that would give us looking out over the next year or two years we should be able to continue to see margins improve?

Cary Wood

That should be the case, correct.

Ross Taylor – Somerset Capital

Okay, great. Thank you, sir.

Operator

We will now take the last few questions for today from the line of Andrew Shapiro, President of Lawndale Capital Management. Please go ahead.

Andrew Shapiro – Lawndale Capital Management

Thank you. A few follow-ups; first off following on has Sparton management or the Sparton board been approached by any potential acquirers to-date?

Cary Wood

That’s always a tricky question to answer. We always continue to be in dialogue with various strategies. We haven’t brought to the board and we haven’t even really entertained the idea this company having gone through a sell process at this point.

Andrew Shapiro – Lawndale Capital Management

Okay. Did – on your sonobuoy quality improvement expenses and your rework costs, do you feel these costs peaked in the December quarter or do you see them peaking in the current or future quarter?

Cary Wood

You know, I would say that they peaked in our first quarter. But as I said earlier, I’m not comfortable citing what the expense was nor giving any kind of guarantees as to what it’s going to look like going into second half of this year. I’m optimistic that we put in the right steps, we’ll continue do the right things; we’ll continue to expect to yield good lots as opposed to having any failures which ultimately results in deferred revenue and in income recognition, I think it was the right choice and we’ll continue to do it. So, I think it probably hit the worse.

Andrew Shapiro – Lawndale Capital Management

So, what you’re saying is that well in December quarter the one that just completed was higher year-over-year it was down from the September quarter expenses?

Cary Wood

No, no. I think it was – I’m sorry it was up in Q1. Yeah, it was up in Q2 versus Q1 and as we look forward, my expectation is that we’ll improve on the efficiency by which we’ve implemented certain quality features.

Andrew Shapiro – Lawndale Capital Management

So, which quarter do you feel the expenses are peaking in, when you say, is that the current March quarter or the December quarter?

Cary Wood

December quarter.

Andrew Shapiro – Lawndale Capital Management

Okay. You talked about the digital compass and the delays and I appreciate the sensitivity of the subject matter. But if you could just give a little bit more clarity, I don’t know if it does. You talked about a delay in related military programs and you can’t really say what programs these are, I’m sure, but can you give insight at least as to how essential the mission is for these programs, does it require a war footing for the country’s defense forces for this mission to come back, that would bring about your sales?

Cary Wood

Yeah. I’m reluctant to say that it takes a conflict of war to justify their purchase. I will say that they are – end-use applications that are mission critical, that they are ruggedized applications that they are more specifically LAN based applications. I think a good comparison to what a LAN based ruggedized mission-critical type of opportunity would look like is field binoculars.

And I think that generally speaking, you know, whenever there is a troop deployments, there certainly is some robust expectations. And when there is redeployment, then I think that there is sometimes of pause. But that doesn’t for me translate that the revenue will ultimately go away. It just suggests that it will move around.

Andrew Shapiro – Lawndale Capital Management

Got it. Let’s move on to Medical here.

Cary Wood

Okay.

Andrew Shapiro – Lawndale Capital Management

So you had two causes of – two headwinds in your Medical side that kept its sales growth from being better. One of them is a disengagement of our Medical segment customer that you cite this quarter was $2.7 million versus last year. Can you tell us when the disengagement with that customer will anniversary and how much in prior year sales to this customer are yet to anniversary?

Cary Wood

It peaked at the close of last year’s second quarter. There were some negligible, when I say negligible, I mean very negligible sales in last year’s Q3 and Q4. And then ultimately dried up and there’s been nothing more since. So I think it’s probably more material to say that it came and went in the Q2 of last year.

Andrew Shapiro – Lawndale Capital Management

Okay. So that won’t be – worthy enough for the headwind to discuss next quarter – this current quarter...

Cary Wood

It’s really not. It’s insignificant revenue.

Andrew Shapiro – Lawndale Capital Management

Okay, then let’s move on to the Siemens, okay. So your press release mentioned sales strength in quote other Siemens programs. So the first thing just to understand your relationship with Siemens; have you signed Siemens up for any new product programs and are these new product programs being dual sourced from inception?

Cary Wood

You know, we continue to be real optimistic with our relationship with Siemens and I think we’ve taken certain steps in the last 6 months to 12 months to strengthen that. We brought on some additional leadership and talents across our business segments. We made a visit to Germany in the last several months to meet directly with our purchasing folks. At this point, I can say we’re and talk about any new programs that have been recently awarded, but I’m not sure that once we would be awarded that I could talk too much about them as it were.

That said I don’t know that I can comment directly around what their dual sourcing strategy is going to be in totality, but I can talk a little bit more specifically about the products that we continue to enjoy with them. I think it’s probably more pragmatically something that it’s not going to be dual sourced. I can’t see here make any guarantees around that, but I think generally speaking, its cost prohibitive. I think you have taken into consideration that there is some sun setting to these products over time, not right away, not near-term but nothing that we haven’t said before. These are products that do a have a bit of more of sunset attribute to them than not.

And I think generally, it just does not make sense for them to spend a lot of time on dual sourcing, retooling, revalidating and ramping up for no more than what this revenue represents with no more been what it’s like might ultimately be. So I think there is a practical side to our products in the threaded dual sourcing, I don’t believe it’s there. I think the full impacts of the dual sourcing of the revenue are question, which was generally as we given guidance in the past, about $28 million of the full year’s 36 last year has started to essentially achieve stabilization and run rate.

And I’m reluctant to say that the issue is completely closed and behind us because it can’t make any guarantees, but I’m pretty comfortable that this we had said last year, it’s a $12 million to $16 million 2012 implication, that seemingly what’s materializing to be. And that our new business efforts will more than fill that at good margins and that’s essentially what we’ve seen.

Andrew Shapiro – Lawndale Capital Management

Okay. And going into that a little detail, your release mentioned sales to certain dual sourced programs totaling $7.5 million in the first half, will still generate another $4.5 million to $5 million in the second half. So in these programs, do you expect dual sourcing to cause any further reduction from this $4.5 million to $5.5 million second half or $9 million to $11 million annualized run rate going into next part of your next fiscal year?

Cary Wood

Yeah, I can’t make any guarantees. But I know the conversations that we have had, I do know generally the expectations and I think it’s fair to say that things are starting to stabilize, I think that were trying to give a reasonable amount of guidance on the go forward annualized implications of the revenue in question. And I think that’s what going to materialize. And I think that said, this issue of Siemens and the sourcing implications is generally behind us. But I do think the – go ahead....

Andrew Shapiro – Lawndale Capital Management

I wanted maybe clarify this to get to a more detailed answer on this. The $4.5 million to $5.5 million second half run rate, right? Will that bring you guys down to the anticipated 40% to 60% of the Sparton’s share of their product line of those product programs?

Cary Wood

Off the revenue that was previously in question, I believe that’s correct.

Andrew Shapiro – Lawndale Capital Management

Okay, so that would mean the, that has a headwind as of the June quarter on those programs, your headwind is done?

Cary Wood

I believe that is correct.

Andrew Shapiro – Lawndale Capital Management

Okay, obviously there is some anniversarying because you have a higher rate in the first of this fiscal year. So in the September and December quarters of 2012, you still have a little bit year-over-year decline?

Cary Wood

Yeah I mean, you’re talking about the $7.5 million versus $5 million to $5.5 million difference between the first the back half, but you’re correct.

Andrew Shapiro – Lawndale Capital Management

Okay. And are these all the Siemens programs now that you are expecting to be dual sourced or are there additional ones that will become dual sourced in current or future quarters that you know about right now?

Cary Wood

There are no other products that we know about that could be potentially dual sourced, the remainder of the products we’ve enjoyed. Some upward momentum on here as a reason, but I think that’s more associated with external demand and not and again, I think it’s more a practical assumption on our part that they’re not likely to be targeted dual sourcing initiatives.

Andrew Shapiro – Lawndale Capital Management

Okay. With respect to your Delphi and the consolidation of Byers Peak into the Frederick, Colorado facility, you said on the last call that consolidation into one facility would be completed by November. Did that take place by then or at least by the end of the December quarter?

Cary Wood

It did take place by then.

Andrew Shapiro – Lawndale Capital Management

Okay. And as of when was Sparton out of its fixed cost expenses of Byers Peak?

Cary Wood

As of the end of November in last year.

Andrew Shapiro – Lawndale Capital Management

Okay, all right. And has the inventory buildup for that consolidation, was it worked off by the end of December or is there more drawdown from that consolidation that will occur in the March Q3 creating more cash?

Cary Wood

We increased our inventory turns quarter-over-quarter from Q1 to Q2. We’ve reduced the overall net inventory by roughly $3.5 million compared to Q1. But I would suggest that there continues to be a little bit of a stronger inventory position on some of the customers that we transitioned over; but I don’t want to leave the impression that it is significant in nature.

Andrew Shapiro – Lawndale Capital Management

Okay, but there’s still a little bit more to be worked off from the consolidation aspect of the business?

Cary Wood

Okay, correct.

Andrew Shapiro – Lawndale Capital Management

Okay. And so now your reduction is inventory overall for the quarter, was that solely due to the Delphi Byers Peak consolidation opportunity or was the reduction of broader-based including Strongsville across the board?

Cary Wood

No, it really was across the business as a whole. Obviously it’s a precarious battle between the ramping up and deploying working capital and managing inventories downward simultaneously. But I was pleased to see that our turns were up and that we’re supporting our service levels as we’ve always done here in the last several quarters that deliveries and fill rates beyond some of our comparative benchmarks. You know, that said, I think we’ve been very, very rigorous in paying very close attention to our inventory. And where there are opportunities to bring it down further, we’re going to continue to attack that.

Andrew Shapiro – Lawndale Capital Management

Okay and on CapEx, it looks like you had a ramp up in Medical CapEx this quarter. Can you talk about what your priorities are for investments to continue to grow this business segment? And was this like a one-time CapEx thing or a recurring investment level?

Cary Wood

We’ve given guidance in the past that our CapEx investment would be 1 point, 1.5 points on a year-over-year average across this business as a whole. We also given guidance on the past that, that will be somewhat increased this year, mostly driven by the investment implementation of an ERP system enterprise-wide. So that really is the genesis of most of that CapEx either in progress or having been behind us. And – but that doesn’t preclude the fact that there have been a variety of investments in productivity. And without citing any of those so as to get away any of our strategic differences; I think there had been a good number of the proper investments across the business as a whole.

Andrew Shapiro – Lawndale Capital Management

Okay. And there was an increase in construction in progress; what is this for, is that the ERP system, I don’t know if you would book it there?

Cary Wood

It is. It’s basically the ERP system.

Andrew Shapiro – Lawndale Capital Management

Okay. And did you have a regular quarterly P&L impact from the Cybernet investment that was on the books that’s no longer on the books?

Cary Wood

We had a book value of $1.6 million and we sold it for $7 (ph) million.

Andrew Shapiro – Lawndale Capital Management

I mean like in the recurring income statement point of view.

Cary Wood

Okay, sorry, Greg?

Gregory Slone

We didn’t Andrew. We’ve treated it on a cost basis, so there has been no impact on P&L. The one thing recognized in the quarter was $227,000 gain on the sale.

Andrew Shapiro – Lawndale Capital Management

Okay. I have like one or two questions and I’m done.

Cary Wood

Okay.

Andrew Shapiro – Lawndale Capital Management

If I can finish them off. Your credit facility comes up to be renewed in August 2012. You haven’t tapped it. When you put it in place, you really needed it and it was very costly. So when do you – when you consider renewing this, do you renew it at the same size and is there an estimate of kind of an amortization or cost savings on a renewal of a credit line when you’re sitting here positive cash flow sustainably and also sitting at $30 million in cash?

Cary Wood

Well, I think, anybody who pay close attention knows the circumstances of the credit market when we took that line out and the circumstances of the company on top of that. So I think, it’s probably the worst of all circumstances and we’ve paid dearly for that line; either the cost of no use or the rates. And I think, we’re in a far better place than today than where we once were. You know, we’re fortunate that this business is a very strong performing business and the underpinnings of that are very solid. And we’ve enjoyed a good number of relationships with traditional sources of funding and capital.

So we continue to have those discussions, it’s not lost on us the timing of our credit line. The specific type of replacement is somewhat situational. If we found ourselves with some pending M&A, we might do something different with the line of credit and we might vastly back in forth between term and alliance. So it’s hard for me to sit here today and say that we would take out the exact same line or take out less or take out more. I think, it is probably more situational than that.

Andrew Shapiro – Lawndale Capital Management

Okay. And my last question is related to this backlog again. At December 31, your DSS backlog was $57 million, okay? And I just want to clarify from what you answered from before, is that both of those ERAPSCO contracts which totaled around $56 million – $54 million. They’re not in that $57 million, so that would put – if they have been signed and entered in your backlog in December 31, you would have had over $100 million backlog in DSS alone?

Cary Wood

Well, you got to keep in mind, that is a combined DoD contract by which you split between us and our partner within ERAPSCO so, you are.

Andrew Shapiro – Lawndale Capital Management

About half of that then?

Cary Wood

Typically the split has been between 45 and 55. The specifics of the split haven’t been announced. But given that range and given the total and to give you absolute certainty that those are roughly $27 million.

Andrew Shapiro – Lawndale Capital Management

So, around – approximately $27 million would have been added in, putting you up at $84 million or so?

Cary Wood

Approximately, correct.

Andrew Shapiro – Lawndale Capital Management

Okay, because they’re both not in there including November.

Cary Wood

That’s correct.

Andrew Shapiro – Lawndale Capital Management

All things, that’s the highest I’ve seen, I think that’s the highest I’ve seen in the backlog, be – of course they won’t go into your backlog until March and you’ll have worked off some of the current backlog down, so...

Cary Wood

That is correct.

Andrew Shapiro – Lawndale Capital Management

So, I guess the timing will be if you sign those ADAR and the SSQ-125 contracts in March. When you projected some March award, is it early March or end of March?

Cary Wood

You know, that can move around quite a bit. You are correct. We do expect ADAR and Q-125 Awards. The size of which we have some general expectations around and I don’t want to give any guidance on that. I think timing has historically been expected as early this February sometimes can slip all the way into what is our fourth quarter, but we sure do hope for March. And I’d like to think that can get layered into our backlog on top of some of the more recent developments. So, you know, that said, I think all of your assumptions are correct, but somewhat dependent upon the US Navy.

Andrew Shapiro – Lawndale Capital Management

Okay. Can you say what the size of the RFPs, were that you bid on?

Cary Wood

I cannot.

Andrew Shapiro – Lawndale Capital Management

Okay. Thank you.

Cary Wood

Thank you, great.

Michael Osborne

Well, I’d like to thank all the participants in today’s call. We apologize that we could not get to everybody’s questions. Again, the call including the question-and-answer period has been recorded and will be posted to our website under the Investor Relations tab later today. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. And I ask that you please disconnect your lines.

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